JERUSALEM (Reuters) - For Benjamin Netanyahu, plans to expand Israeli settlements may risk a diplomatic crisis with Europe but could prove a good bet at the ballot box.

With a January 22 election looming, the Israeli leader has defied long-standing international opposition to settlements and announced plans to build at least 3,000 more homes in the occupied West Bank and East Jerusalem after the United Nations' de facto recognition of Palestinian statehood.

Standing up to Europe, where a string of Israeli diplomats were summoned for reprimands by the governments of Britain, France, Spain, Sweden and Denmark on Monday, could help cement right-wing voter support for the conservative prime minister.

"We feared that politicians would clamber over themselves to show who could be tougher with the Palestinians. However we had hoped that Netanyahu would show more restraint. It didn't happen," said a Western diplomat in Jerusalem.

"We did not want the Palestinians to go to the United Nations during an Israeli election campaign precisely for this reason," the diplomat said.

Israel rebuffed European protests and appeals to reverse course on the settlement drive, saying it would "stand by its vital interests, even in the face of international pressure".

Settlement projects on land Israel captured in the 1967 Arab-Israeli War are considered illegal by most world powers and have routinely drawn condemnation from them. Some 500,000 Israelis and 2.5 million Palestinians live in the West Bank and East Jerusalem.

But this time, the government also ordered new "planning work" in one of the most highly sensitive areas of the West Bank known as "E1". Israeli housing on its barren hills could split the West Bank in two, denying the Palestinians a viable state.

Many Israelis have traditionally viewed the United Nations and many European governments as being particularly sympathetic to the Palestinian cause.

And in an aside by Netanyahu during a visit to the United States, Israel's main ally, he appeared to indicate he shared those sentiments.

"Americans get it," he said, referring to arguments he has made in support of his government's policies. "Europeans don't."

That has not always been the case as far as U.S. President Barack Obama is concerned, particularly on the settlement issue and the open question of whether Israel might attack Iran's nuclear programme in defiance of Washington's calls to give diplomatic options more time.

But Obama has never been at the top of Israelis' popularity lists and friction between the two leaders seems not to have hurt Netanyahu in the opinion polls, which predict he will coast to victory in the upcoming ballot.

VOTER EXPECTATIONS

Tamir Sheafer, a political scientist at Jerusalem's Hebrew University, said Netanyahu's settlement move was "what his voters expect of him" and stemmed from internal political considerations.

"Maybe they are worried in (Netanyahu's) Likud that right-wing voters will opt instead for (the far-right religious)Habayit Hayehudi party," Sheafer said.

So far, European anger over the settlement plan has not led to any sanctions against Israel. Any punitive measures before the election would fuel arguments made by Netanyahu's political opponents that he was deepening its diplomatic isolation.

"I think there are electoral considerations (behind Netanyahu's settlement moves)," said Gideon Rahat, a Hebrew University political scientist. "But he's also used to (Europe and the United States) not bothering him much and now they seem to have changed the rules of the game."

Still, Sheafer said, "something very unusual or unexpected would have to happen for the next government not to be headed by Netanyahu - it's very simple mathematics, the centre-left simply doesn't have enough parliamentary seats" to form a coalition.

With details of the future settler housing in the West Bank and East Jerusalem still sketchy and Israeli officials saying any construction in E1 would be more than a year away, Israel and Europe still have room to manoeuvre.

"We don't know where these units will be built. I don't think anyone knows. They are probably scurrying around now trying to figure out where they will be built," said Daniel Seidemann, an Israeli expert on settlements.

"This announcement was made for dramatic effect. That doesn't mean it won't happen, it means the dramatic effect precedes the decision," Seidemann said.

Tzipi Livni, a former foreign minister who is running in the upcoming poll as the head of a new centrist party, said in a statement that Netanyahu's settlement move "isolates Israel and encourages international pressure".

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